Money Market Funds

The Securities and Exchange Commission is in the process of updating its regulatory rules on money market mutual funds. These funds invest in high-quality and short-term debt instruments, such as Treasury bills and commercial paper. Over the past 30 years, money market funds have become a very popular investment vehicle for both individual and institutional investors, offering yields that are higher than interest-bearing bank deposit accounts. Currently, money market funds hold more than $3 trillion in investor assets.

Shares of money market funds are priced at a fixed net asset value during each trading day, an amount that is typically $1 per share. During the recent financial crisis, several money market funds faced liquidity problems after the bankruptcy of the Lehman Brothers investment bank on September 15, 2008. One of these funds, The Reserve Primary Fund, experienced a run on its shares and could not meet its redemption requests from investors. On September 16, 2008, the Fund announced that it would "break the buck" by pricing its net asset value for the day at $0.97 a share. This action caused the SEC to issue an order permitting the Fund to suspend redemptions and begin an orderly process to liquidate the Fund.

To assist money market funds with similar liquidity problems, the Treasury Department established a temporary program in the fall of 2008 to guarantee deposits in individual fund accounts until the financial crisis was over. Many mutual funds enrolled in this voluntary program.

In June 2009, the SEC released for public comment several regulatory proposals to reform its money market rules. These proposals were finalized by the SEC in February 2010, and the agency announced that it would begin a second round of rulemaking on money market funds, to make further changes to its regulatory framework.

In the fall of 2010, the President's Working Group on Financial Markets issued a report proposing several wide-ranging regulatory reforms to reduce the susceptibility of money market funds to "liquidity runs." The SEC asked for public comments on this report and the regulatory options presented.

CMFI has submitted several comment letters on the proposals issued by the SEC and the President's Working Group to amend federal money market rules. It is expected that the SEC will propose additional rule changes for public comment before the end of 2011. Click on the tabs for Documents, Comments, and Blog Entries to track the latest developments.

CMFI Comment Letter on Proposed SEC Money Market Fund Reforms

On September 17, 2013, CMFI submitted the attached comment letter to the SEC, in response to the agency's proposed reforms regarding money market funds. In its letter, CMFI asserts that several of the SEC's regulatory proposals, including the retail exemption to a floating NAV requirement and the imposition of redemption fees in a liquidity crisis, create the need to provide money market funds with full transparency into omnibus accounts used by broker-dealers and other financial intermediaries.

On January 21, 2013, CMFI sent a comment letter to the Financial Stability Oversight Council (FSOC) on money market fund reforms. The FSOC recently published a series of proposed recommendations regarding the regulatory framework for these funds, to reduce the risk of a "run" on assets in a future financial crisis. Several of the FSOC regulatory proposals are unworkable without full transparency within omnibus accounts. This CMFI comment letter explains the operational challenges involved and proposes a cost-effective solution for both funds and their investors.

On November 15, 2012, CMFI sent a letter to SEC Commissioners Daniel Gallagher and Troy Paredes, in response to their public statement on August 28, 2012, regarding the regulation of money market funds. CMFI believes that the regulatory alternative proposed by these two Commissioners, which would permit fund boards to impose "gates" on redemptions in a financial crisis, cannot be implemented accurately and fairly within non-transparent omnibus accounts.

On March 8, 2012, CMFI sent a letter to SEC Commissioner Luis Aguilar about money market fund regulation. CMFI's letter was in response to Commissioner Aguilar's public statement that the SEC should address transparency problems in money market investment vehicles before regulators consider imposing additional structural reforms affecting these funds.

On January 21, 2011, CMFI submitted a comment letter in response to the study on money market funds issued by the President’s Working Group on Financial Markets. This study included several possible reforms to mitigate the susceptibility of money market funds to “liquidity runs.”

On March 17, 2009, the Investment Company Institute (ICI) released the recommendations of its Money Market Working Group. Among other recommendations, the ICI Working Group advocated that the industry adopt more “robust” shareholder transparency procedures within third-party omnibus accounts to mitigate fund liquidity risks.

On October 23, 2008, CMFI sent a letter to Treasury Secretary Henry Paulson, expressing concern that its Money Market Fund Guarantee program does not provide adequate protection for individual investors who purchased money market fund shares through third-party intermediaries.

On September 29, 2008, the Treasury Department announced a Temporary Guarantee Program for Money Market Funds. This program provides a U.S. government guarantee on the share price of any eligible money market fund that applies for and pays a fee to participate in this program. As a result of the 2008 financial crisis, many money market funds enrolled in this program.

The Coalition of Mutual Fund Investors (CMFI) sent a letter to the Treasury Department and the Securities and Exchange Commission on October 23, 2008, regarding the Federal government's money...

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The Securities and Exchange Commission is in the process of updating its regulatory rules on money market mutual funds. These funds invest in high-quality and short-term debt instruments, such as Treasury bills and commercial paper. Over the past 30 years, money market funds have become a very popular investment vehicle for both individual and institutional investors, offering yields that are higher than interest-bearing bank deposit accounts. Currently, money market funds hold more than $3 trillion in investor assets.

Shares of money market funds are priced at a fixed net asset value during each trading day, an amount that is typically $1 per share. During the recent financial crisis, several money market funds faced liquidity problems after the bankruptcy of the Lehman Brothers investment bank on September 15, 2008. One of these funds, The Reserve Primary Fund, experienced a run on its shares and could not meet its redemption requests from investors. On September 16, 2008, the Fund announced that it would "break the buck" by pricing its net asset value for the day at $0.97 a share. This action caused the SEC to issue an order permitting the Fund to suspend redemptions and begin an orderly process to liquidate the Fund.

To assist money market funds with similar liquidity problems, the Treasury Department established a temporary program in the fall of 2008 to guarantee deposits in individual fund accounts until the financial crisis was over. Many mutual funds enrolled in this voluntary program.

In June 2009, the SEC released for public comment several regulatory proposals to reform its money market rules. These proposals were finalized by the SEC in February 2010, and the agency announced that it would begin a second round of rulemaking on money market funds, to make further changes to its regulatory framework.

In the fall of 2010, the President's Working Group on Financial Markets issued a report proposing several wide-ranging regulatory reforms to reduce the susceptibility of money market funds to "liquidity runs." The SEC asked for public comments on this report and the regulatory options presented.

CMFI has submitted several comment letters on the proposals issued by the SEC and the President's Working Group to amend federal money market rules. It is expected that the SEC will propose additional rule changes for public comment before the end of 2011. Click on the tabs for Documents, Comments, and Blog Entries to track the latest developments.

Document Title:

CMFI Comment Letter on Proposed SEC Money Market Fund Reforms

Document Desc:

On September 17, 2013, CMFI submitted the attached comment letter to the SEC, in response to the agency's proposed reforms regarding money market funds. In its letter, CMFI asserts that several of the SEC's regulatory proposals, including the retail exemption to a floating NAV requirement and the imposition of redemption fees in a liquidity crisis, create the need to provide money market funds with full transparency into omnibus accounts used by broker-dealers and other financial intermediaries.

On January 21, 2013, CMFI sent a comment letter to the Financial Stability Oversight Council (FSOC) on money market fund reforms. The FSOC recently published a series of proposed recommendations regarding the regulatory framework for these funds, to reduce the risk of a "run" on assets in a future financial crisis. Several of the FSOC regulatory proposals are unworkable without full transparency within omnibus accounts. This CMFI comment letter explains the operational challenges involved and proposes a cost-effective solution for both funds and their investors.

On November 15, 2012, CMFI sent a letter to SEC Commissioners Daniel Gallagher and Troy Paredes, in response to their public statement on August 28, 2012, regarding the regulation of money market funds. CMFI believes that the regulatory alternative proposed by these two Commissioners, which would permit fund boards to impose "gates" on redemptions in a financial crisis, cannot be implemented accurately and fairly within non-transparent omnibus accounts.

On March 8, 2012, CMFI sent a letter to SEC Commissioner Luis Aguilar about money market fund regulation. CMFI's letter was in response to Commissioner Aguilar's public statement that the SEC should address transparency problems in money market investment vehicles before regulators consider imposing additional structural reforms affecting these funds.

On January 21, 2011, CMFI submitted a comment letter in response to the study on money market funds issued by the President’s Working Group on Financial Markets. This study included several possible reforms to mitigate the susceptibility of money market funds to “liquidity runs.”

The SEC publishes comment letters on its website within a few days of receiving them.

Document Link:

http://www.sec.gov/comments/s7-11-09/s71109.shtml

Document Title:

SEC Proposed Rules on Money Market Funds

Document Desc:

On June 30, 2009, the SEC released several regulatory proposals to reform its money market fund rules.

Document Link:

http://www.sec.gov/rules/proposed/2009/ic-28807fr.pdf

Document Title:

Investment Company Institute Recommendations on Money Market Funds

Document Desc:

On March 17, 2009, the Investment Company Institute (ICI) released the recommendations of its Money Market Working Group. Among other recommendations, the ICI Working Group advocated that the industry adopt more “robust” shareholder transparency procedures within third-party omnibus accounts to mitigate fund liquidity risks.

On October 23, 2008, CMFI sent a letter to Treasury Secretary Henry Paulson, expressing concern that its Money Market Fund Guarantee program does not provide adequate protection for individual investors who purchased money market fund shares through third-party intermediaries.

Document Link:

http://www.investorscoalition.com/PaulsonLetterOctober2008.pdf

Document Title:

Frequently Asked Questions on the Treasury Department Guarantee Program

Document Desc:

On September 29, 2008, the Treasury Department released a Frequently Asked Questions document about its Temporary Guarantee Program for Money Market Funds.

Document Link:

http://www.treasury.gov/press-center/press-releases/Pages/hp1163.aspx

Document Title:

Treasury Department Money Market Fund Guarantee Program

Document Desc:

On September 29, 2008, the Treasury Department announced a Temporary Guarantee Program for Money Market Funds. This program provides a U.S. government guarantee on the share price of any eligible money market fund that applies for and pays a fee to participate in this program. As a result of the 2008 financial crisis, many money market funds enrolled in this program.